Connecticut State Tax Rules for Foreign Companies - Nexus

Connecticut Taxation Rules for Foreign Corporations:

Chapter 208 - Corporation Taxes


Sec. 12-216a. Payment of tax by companies having economic nexus with state. Any company that derives income from sources within this state, or that has a substantial economic presence within this state, evidenced by a purposeful direction of business toward this state, examined in light of the frequency, quantity and systematic nature of a company's economic contacts with this state, without regard to physical presence, and to the extent permitted by the Constitution of the United States, shall be liable for the tax imposed under this chapter. Such company shall apportion its net income under the provisions of this chapter.

      (June Sp. Sess. P.A. 09-3, S. 90.)

      History: June Sp. Sess. P.A. 09-3 effective September 9, 2009, and applicable to income years commencing on or after January 1, 2010.


Note: This Citation is as of 9/15/12 - ALL Connecticut State Tax Rules are subject to change and update and you must confirm as filing or relying. This citation is for your general awareness.

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California State Income Tax - Water's Edge Allocation (Elections)

California Revenue and Taxation Code
CH 17 - Allocation of Income
Article 1.5 Water's Edge Allocation

REVENUE AND TAXATION CODE
SECTION 25110-25116


25110.  (a) Notwithstanding Section 25101, a qualified taxpayer, as
defined in paragraph (2) of subdivision (b), that is subject to the
tax imposed under this part, may elect to determine its income
derived from or attributable to sources within this state pursuant to
a water's-edge election in accordance with the provisions of this
part, as modified by this article. A taxpayer, that made a water'
s-edge election prior to January 1, 2006, shall take into account the
income and apportionment factors of the following affiliated
entities only:
   (1) Domestic international sales corporations, as described in
Sections 991 to 994, inclusive, of the Internal Revenue Code and
foreign sales corporations as described in Sections 921 to 927,
inclusive, of the Internal Revenue Code.
   (2) Any corporation (other than a bank), regardless of the place
where it is incorporated if the average of its property, payroll, and
sales factors within the United States is 20 percent or more.
   (3) Corporations that are incorporated in the United States,
excluding corporations making an election pursuant to Sections 931 to
936, inclusive, of the Internal Revenue Code, of which more than 50
percent of their voting stock is owned or controlled directly or
indirectly by the same interests.
   (4) A corporation that is not described in paragraphs (1) to (3),
inclusive, or paragraph (5), but only to the extent of its income
derived from or attributable to sources within the United States and
its factors assignable to a location within the United States in
accordance with paragraph (3) of subdivision (b). Income of that
corporation derived from or attributable to sources within the United
States as determined by federal income tax laws shall be limited to
and determined from the books of account maintained by the
corporation with respect to its activities conducted within the
United States.
   (5) Export trade corporations, as described in Sections 970 to
972, inclusive, of the Internal Revenue Code.
   (6) Any affiliated corporation which is a "controlled foreign
corporation," as defined in Section 957 of the Internal Revenue Code,
if all or part of the income of that affiliate is defined in Section
952 of Subpart F of the Internal Revenue Code ("Subpart F income").
The income and apportionment factors of any affiliate to be included
under this paragraph shall be determined by multiplying the income
and apportionment factors of that affiliate without application of
this paragraph by a fraction (not to exceed one), the numerator of
which is the "Subpart F income" of that corporation for that taxable
year and the denominator of which is the "earnings and profits" of
that corporation for that taxable year, as defined in Section 964 of
the Internal Revenue Code.
   (7) (A) The income and factors of the above-enumerated
corporations shall be taken into account only if the income and
factors would have been taken into account under Section 25101 if
this section had not been enacted.
   (B) The income and factors of a corporation that is not described
in paragraphs (1) to (3), inclusive, and paragraph (5) and that is an
electing taxpayer under this subdivision shall be taken into account
in determining its income only to the extent set forth in paragraph
(4).
   (b) For purposes of this article and Section 24411 all of the
following definitions apply:
   (1) An "affiliated corporation" means a corporation that is a
member of a commonly controlled group as defined in Section 25105.
   (2) A "qualified taxpayer" means a corporation which does both of
the following:
   (A) Files with the state tax return on which the water's-edge
election is made a consent to the taking of depositions at the time
and place most reasonably convenient to all parties from key domestic
corporate individuals and to the acceptance of subpoenas duces tecum
requiring reasonable production of documents to the Franchise Tax
Board as provided in Section 19504 or by the State Board of
Equalization as provided in Title 18, California Code of Regulations,
Section 5005, or by the courts of this state as provided in Chapter
2 (commencing with Section 1985) of Title 3 of Part 4 of, and Chapter
9 (commencing with Section 2025.010) of Title 4 of Part 4 of, the
Code of Civil Procedure. The consent relates to issues of
jurisdiction and service and does not waive any defenses a taxpayer
may otherwise have. The consent shall remain in effect so long as the
water's-edge election is in effect and shall be limited to providing
that information necessary to review or to adjust income or
deductions in a manner authorized under Sections 482, 861, Subpart F
of Part III of Subchapter N, or similar provisions of the Internal
Revenue Code, together with the regulations adopted pursuant to those
provisions, and for the conduct of an investigation with respect to
any unitary business in which the taxpayer may be involved.
   (B) Agrees that for purposes of this article, dividends received
by any corporation whose income and apportionment factors are taken
into account pursuant to subdivision (a) from either of the following
are functionally related dividends and shall be presumed to be
business income:
   (i) A corporation of which more than 50 percent of the voting
stock is owned, directly or indirectly, by members of the unitary
group and which is engaged in the same general line of business.
   (ii) Any corporation that is either a significant source of supply
for the unitary business or a significant purchaser of the output of
the unitary business, or that sells a significant part of its output
or obtains a significant part of its raw materials or input from the
unitary business. "Significant," as used in this subparagraph, means
an amount of 15 percent or more of either input or output.
   All other dividends shall be classified as business or nonbusiness
income without regard to this subparagraph.
   (3) The definitions and locations of property, payroll, and sales
shall be determined under the laws and regulations that set forth the
apportionment formulas used by the individual states to assign net
income subject to taxes on or measured by net income in that state.
If a state does not impose a tax on or measured by net income or does
not have laws or regulations with respect to the assignment of
property, payroll, and sales, the laws and regulations provided in
Article 2 (commencing with Section 25120) shall apply.
   Sales shall be considered to be made to a state only if the
corporation making the sale may otherwise be subject to a tax on or
measured by net income under the Constitution or laws of the United
States, and shall not include sales made to a corporation whose
income and apportionment factors are taken into account pursuant to
subdivision (a) in determining the amount of income of the taxpayer
derived from or attributable to sources within this state.
   (4) "The United States" means the 50 states of the United States
and the District of Columbia.
   (c) All references in this part to income determined pursuant to
Section 25101 shall also mean income determined pursuant to this
section.
   (d) (1) This section shall apply only to a taxable year of a
taxpayer that determines its income derived from or attributable to
sources within this state pursuant to a water's-edge election made
prior to January 1, 2006, where that election may not be terminated
for that taxable year without the consent of the Franchise Tax Board
pursuant to paragraph (9) of subdivision (c) of Section 25113.
   (2) This section shall be repealed on January 1, 2014.




25110.  (a) Notwithstanding Section 25101, a qualified taxpayer, as
defined in paragraph (2) of subdivision (b), that is subject to the
tax imposed under this part, may elect to determine its income
derived from or attributable to sources within this state pursuant to
a water's-edge election in accordance with the provisions of this
part, as modified by this article. A taxpayer, that makes a water'
s-edge election on or after January 1, 2006, shall take into account
that portion of its own income and apportionment factors and the
income and apportionment factors of its affiliated entities to the
extent provided below:
   (1) The entire income and apportionment factors of any of the
following corporations:
   (A) Domestic international sales corporations, as described in
Sections 991 to 994, inclusive, of the Internal Revenue Code and
foreign sales corporations as described in Sections 921 to 927,
inclusive, of the Internal Revenue Code.
   (B) Any corporation (other than a bank), regardless of the place
where it is incorporated if the average of its property, payroll, and
sales factors within the United States is 20 percent or more.
   (C) Corporations that are incorporated in the United States,
excluding corporations making an election pursuant to Sections 931 to
936, inclusive, of the Internal Revenue Code.
   (D) Export trade corporations, as described in Sections 970 to
972, inclusive, of the Internal Revenue Code.
   (2) (A) With respect to a corporation that is not described in
subparagraphs (A), (B), (C), and (D) of paragraph (1), as provided in
either one or both of the following clauses:
   (i) The income and apportionment factors of that corporation to
the extent of its income derived from or attributable to sources
within the United States and its factors assignable to a location
within the United States in accordance with paragraph (3) of
subdivision (b). Income of that corporation derived from or
attributable to sources within the United States as determined by
federal income tax laws shall be limited to, and determined from, the
books of account maintained by the corporation with respect to its
activities conducted within the United States.
   (ii) The income and apportionment factors of that corporation that
is a "controlled foreign corporation," as defined in Section 957 of
the Internal Revenue Code, to the extent determined by multiplying
the income and apportionment factors of that corporation without
application of this subparagraph by a fraction not to exceed one, the
numerator of which is the "Subpart F income" of that corporation for
that taxable year and the denominator of which is the "earnings and
profits" of that corporation for that taxable year.
   (B) For purposes of this paragraph, both of the following apply:
   (i) "Subpart F income" means "Subpart F income" as defined in
Section 952 of the Internal Revenue Code.
   (ii) "Earnings and profits" means "earnings and profits" as
described in Section 964 of the Internal Revenue Code.
   (3) The income and apportionment factors of the corporations
described in this subdivision shall be taken into account only to the
extent that they would have been taken into account had no election
under this section been made.
   (4) The Franchise Tax Board shall prescribe regulations to
coordinate implementation of subparagraph (A) of paragraph (2) to
prevent multiple inclusion or exclusion of income and factors in
situations where the same item of income is described in both
clauses.
   (b) For purposes of this article and Section 24411, all of the
following definitions apply:
   (1) An "affiliated corporation" means a corporation that is a
member of a commonly controlled group as defined in Section 25105.
   (2) A "qualified taxpayer" means a corporation that does both of
the following:
   (A) Files with the state tax return, on which the water's-edge
election is made, a consent to the taking of depositions, at the time
and place most reasonably convenient to all parties, from key
domestic corporate individuals and to the acceptance of subpoenas
duces tecum requiring reasonable production of documents to the
Franchise Tax Board, as provided in Section 19504, by the State Board
of Equalization, as provided in Section 5005 of Title 18 of the
California Code of Regulations, or by the courts of this state, as
provided in Chapter 2 (commencing with Section 1985) of Title 3 of
Part 4 of, and Chapter 9 (commencing with Section 2025.010) of Title
4 of Part 4 of, the Code of Civil Procedure. The consent relates to
issues of jurisdiction and service and does not waive any defenses
that a taxpayer may otherwise have. The consent shall remain in
effect as long as the water's-edge election is in effect, and shall
be limited to providing that information necessary to review or
adjust income or deductions in a manner authorized by Section 482,
861, Subpart F of Part III of Subchapter N, or similar provisions, of
the Internal Revenue Code, together with the regulations adopted
pursuant to those provisions, and for the conduct of an investigation
with respect to any unitary business in which the taxpayer may be
involved.
   (B) Agrees that, for purposes of this article, dividends received
by any corporation whose income and apportionment factors are taken
into account pursuant to subdivision (a) from either of the following
are functionally related dividends and shall be presumed to be
business income:
   (i) A corporation of which more than 50 percent of the voting
stock is owned, directly or indirectly, by members of the unitary
group and which is engaged in the same general line of business.
   (ii) Any corporation that is either a significant source of supply
for the unitary business or a significant purchaser of the output of
the unitary business, or that sells a significant part of its output
or obtains a significant part of its raw materials or input from the
unitary business. "Significant," as used in this subparagraph, means
an amount of 15 percent or more of either input or output.
   All other dividends shall be classified as business or nonbusiness
income without regard to this subparagraph.
   (3) The definitions and locations of property, payroll, and sales
shall be determined under the laws and regulations that set forth the
apportionment formulas used by the individual states to assign net
income subject to taxes on, or measured by, net income in that state.
If a state does not impose a tax on, or measured by, net income or
does not have laws or regulations with respect to the assignment of
property, payroll, and sales, the laws and regulations provided in
Article 2 (commencing with Section 25120) shall apply.
   Sales shall be considered to be made to a state only if the
corporation making the sale may otherwise be subject to a tax on, or
measured by, net income under the Constitution or laws of the United
States, and shall not include sales made to a corporation whose
income and apportionment factors are taken into account pursuant to
subdivision (a) in determining the amount of income of the taxpayer
derived from or attributable to sources within this state.
   (4) "The United States" means the 50 states of the United States
and the District of Columbia.
   (c) All references in this part to income determined pursuant to
Section 25101 shall also mean income determined pursuant to this
section.



25111.  (a) For taxable years beginning before January 1, 2003, the
making of a water's-edge election as provided for in Section 25110
shall be made by contract with the Franchise Tax Board in the
original return for a year and shall be effective only if every
taxpayer that is a member of the water's-edge group and which is
subject to tax under this part makes the election. A single taxpayer
that is engaged in more than one business activity subject to
allocation and apportionment as provided in Article 2 (commencing
with Section 25120) of Chapter 17 may make a separate election for
each business. The form and manner of making the water's-edge
election shall be prescribed by the Franchise Tax Board. Each
contract making a water's-edge election shall be for an initial term
of 84 months, except as provided in subdivision (b). Each contract
shall provide that on the anniversary date of the contract or any
other annual date specified by the contract a year shall be added
automatically to the initial term unless notice of nonrenewal is
given as provided in subdivision (d). An affiliated corporation that
is a member of the water's-edge group and subsequently becomes
subject to tax under this part or is a nonelecting taxpayer that is
subsequently proved to be a member of the water's-edge group pursuant
to a Franchise Tax Board audit determination, as evidenced by a
notice of deficiency proposed to be assessed or a notice of tax
change, shall be deemed to have elected.
   No water's-edge election shall be made for a taxable year
beginning prior to January 1, 1988.
   (b) A water's-edge election may be terminated by a taxpayer prior
to the end of the 84-month period if either of the following occurs:
   (1) The taxpayer is acquired directly or indirectly by a
nonelecting entity which alone or together with those affiliates
included in its combined report is larger than the taxpayer as
measured by equity capital.
   (2) With the permission of the Franchise Tax Board.
   (c) In granting a change of election, the Franchise Tax Board
shall impose any conditions that are necessary to prevent the
avoidance of tax or to clearly reflect income for the period the
election was, or was purported to be, in effect. These conditions may
include a requirement that income, including dividends paid from
income earned while a water's-edge election was in effect, which
would have been included in determining the income of the taxpayer
from sources within and without this state pursuant to Section 25101
but for the water's-edge election shall be included in income in the
year in which the election is changed.
   (d) If the taxpayer desires in any year not to renew the election,
the taxpayer shall serve written notice of nonrenewal upon the board
at least 90 days in advance of the annual renewal date. Unless that
written notice is provided to the board, the election shall be
considered renewed as provided in subdivision (a).
   (e) If the taxpayer serves notice of intent in any year not to
renew the existing water's-edge election, that existing election
shall remain in effect for the balance of the period remaining since
the original election or the last renewal of the election, as the
case may be.
   (f) To the extent that a taxpayer would have been required to file
on a water's-edge basis in its first taxable year beginning on or
after January 1, 2003, pursuant to a water's-edge election made in a
prior year under this section, the terms of this section no longer
apply and that election shall be deemed to have been made under the
terms of Section 25113. However, the commencement date of the
election made in a prior year under this section shall continue to be
treated as the commencement date of the water's-edge election period
for purposes of applying the provisions of Section 25113.



25111.1.  (a) For any taxable year beginning on or after January 1,
1994, consideration for water's-edge contracts in existence as of
that date is no longer provided for by law. Contracts entered into
for taxable years beginning prior to January 1, 1994, are rescinded
for any periods remaining on those contracts commencing on the first
day of the taxpayer's first taxable year that begins on or after
January 1, 1994. Any fiscal year taxpayer whose contract is in effect
as of December 31, 1993, shall continue to be bound by that contract
until the close of its taxable year after January 1, 1994, and
before December 31, 1994.
   (b) Notwithstanding subdivision (a), and except for the purposes
of Section 25115, all taxpayers that are members of a water's-edge
group consisting of taxpayers with different taxable years shall
continue to be bound by the contract in effect as of December 31,
1993, until the taxable year beginning prior to January 1, 1994, and
ending in 1994 for each of the taxpayer members of the water's-edge
group has ended.



25112.  (a) If a taxpayer electing to file under Section 25110 fails
to supply any information described in subdivision (b), the taxpayer
shall pay a penalty of one thousand dollars ($1,000) for each
taxable year with respect to which the failure occurs.
   (b) A taxpayer electing to file pursuant to Section 25110 shall do
all of the following:
   (1) Retain and make available to the Franchise Tax Board, upon
request, the documents and information, including any questionnaires
completed and submitted to the Internal Revenue Service or qualified
states, that are necessary to audit issues involving attribution of
income to the United States or foreign jurisdictions under Sections
482, 861, 863, 902, and 904, and Subpart F of Part III of Subchapter
N, or similar sections of the Internal Revenue Code.
   (2) Identify, upon request, principal officers or employees who
have substantial knowledge of, and access to, documents and records
that discuss pricing policies, profit centers, cost centers, and the
methods of allocating income and expense among these centers. The
information shall include the employees' titles and addresses.
   (3) Retain and make available, upon request, all documents and
correspondence ordinarily available to a corporation included in the
water's-edge election that are submitted to, or obtained from, the
Internal Revenue Service, foreign countries or their territories or
possessions, and competent authority pertaining to ruling requests,
rulings, settlement resolutions, and competing claims involving
jurisdictional assignment and sourcing of income that affect the
assignment of income to the United States. The documents shall
include all ruling requests and rulings on reorganizations involving
foreign incorporation of branches, all ruling requests and rulings on
changing a corporation's jurisdictional incorporation, and all
documents that are ordinarily available to a corporation included in
the water's-edge election that pertain to the determination of
foreign tax liability, including examination reports issued by
foreign taxing administrations. If the documents have been
translated, the translations shall be furnished.
   (4) Retain and make available, upon request, information filed
with the Internal Revenue Service to comply with Sections 6038,
6038A, 6038B, 6038C, and 6041 of the Internal Revenue Code.
   (5) Upon request, prepare and make available for each corporation
organized or created under the laws of the United States or a
political subdivision thereof, of which 50 percent or more of its
voting stock is directly or indirectly owned or controlled, the
information that would be included in the forms described in
paragraph (4) if those forms were required for United States
corporations.
   (6) Retain and make available, upon request, all state tax returns
filed by each corporation included under subdivision (a) in each
state, including the District of Columbia.
   (7) Comply with reasonable requests for information necessary to
determine or verify its net income, apportionment factors, or the
geographic source of that income pursuant to the Internal Revenue
Code.
   (8) For purposes of this subdivision, information for any year
shall be retained for that period of time in which the taxpayer's
income or franchise tax liability to this state may be subject to
adjustment, including all periods in which additional income or
franchise taxes may be assessed or during which an appeal is pending
before the State Board of Equalization or a lawsuit is pending in the
courts of this state or the United States with respect to California
franchise or income tax.
   (c) If the failure continues for more than 90 days after the date
on which the Franchise Tax Board mails notice of that failure to the
taxpayer, the taxpayer shall pay a penalty (in addition to the amount
required under subdivision (a)) of one thousand dollars ($1,000) for
each 30-day period (or fraction thereof) during which the failure
continues after the expiration of the 90-day period. The increase in
any penalty under this subdivision shall not exceed twenty-four
thousand dollars ($24,000).
   (d) If the taxpayer fails to comply substantially with any formal
document request arising out of the examination of the tax treatment
of any item (hereafter in this section referred to as the "examined
item") before the 90th day after the date of the mailing of the
request, any court having jurisdiction of a civil proceeding in which
the tax treatment of the examined item is an issue may, upon motion
by the Franchise Tax Board, prohibit the introduction by the taxpayer
of documentation covered by that request.
   (e) For purposes of this section, the time in which information is
to be furnished (and the beginning of the 90-day period after notice
by the Franchise Tax Board) shall be treated as beginning not
earlier than the last day on which reasonable cause existed for
failure to furnish the information.
   (f) This section shall not apply with respect to any requested
documentation if the taxpayer establishes that the failure to provide
the documentation, as requested by the Franchise Tax Board, is due
to reasonable cause. For purposes of subdivision (d), the fact that a
foreign jurisdiction would impose a civil or criminal penalty on the
taxpayer (or any other person) for disclosing the requested
documentation is not reasonable cause unless, after in-camera review
of the documentation, the court finds otherwise.
   (g) For purposes of this section, the term "formal document
request" means any request (made after the normal request procedures
have failed to produce the requested documentation) for the
production of documentation that is mailed by registered or certified
mail to the taxpayer at its last known address and that sets forth
all of the following:
   (1) The time and place for the production of the documentation.
   (2) A statement of the reason the documentation previously
produced (if any) is not sufficient.
   (3) A description of the documentation being sought.
   (4) The consequences to the taxpayer of the failure to produce the
documentation described in this section.
   (h) Notwithstanding any other law or rule of law, any taxpayer to
whom a formal document request is mailed may begin a proceeding to
quash that request not later than the 90th day after the date the
request was mailed. In that proceeding, the Franchise Tax Board may
seek to compel compliance with the request.
   (i) The superior courts of the State of California for the
Counties of Los Angeles, Sacramento, and San Diego, and for the City
and County of San Francisco shall have jurisdiction to hear any
proceeding brought under subdivision (h). An order denying the
petition shall be deemed a final order that may be appealed.
   The running of the 90-day period referred to in subdivision (c)
shall be suspended during any period during which a proceeding
brought under subdivision (h) is pending.
   (j) For purposes of this section, "documentation" means any
documentation which may be relevant or material to the tax treatment
of the examined item.
   (k) The Franchise Tax Board, and any court having jurisdiction
over a proceeding under subdivision (g), may extend the 90-day period
referred to in subdivision (b).
   (l) If any corporation takes any action as provided in subdivision
(h), the running of any period of limitations under Sections 19057
to 19067, inclusive (relating to the assessment and collection of
tax), or under Section 19704 (relating to criminal prosecutions) with
respect to that corporation shall be suspended for the period during
which the proceedings under subdivision (h) and appeals thereto are
pending.



25113.  (a) Except as provided in subdivision (f), for taxable years
beginning on or after January 1, 2003, the election provided for in
Section 25110 shall be made on an original, timely filed return for
the year of the election. The election will be considered valid if
both of the following conditions are satisfied:
   (1) The tax is computed in a manner consistent with a water's-edge
election.
   (2) A written notification of election is filed with the return on
a form prescribed by the Franchise Tax Board. Pursuant to
regulations promulgated under this section, the Franchise Tax Board
may accept the filing of other objective evidence that supports the
conclusion that a water's-edge election was intended in lieu of
notification on the designated form.
   (b) Except as otherwise provided, a water's-edge election shall be
effective only if made by every member of the self-assessed combined
reporting group that is subject to taxation under this part.
   (1) An election made on a group return of a self-assessed combined
reporting group shall constitute an election by each taxpayer member
included in that group return, unless one of those taxpayers files a
separate return in which no election is made and paragraph (2) does
not apply.
   (2) A taxpayer that fails to make an election on its own timely
filed original return shall be deemed to have elected if either of
the following apply:
   (A) It has a parent corporation that is an electing taxpayer that
included the income and apportionment factors of the nonelecting
taxpayer in the self-assessed combined reporting group reflected in
the electing parent's timely filed original return, including a group
return.
   (B) The income and apportionment factors of the nonelecting
taxpayer is reflected in the self-assessed combined reporting group
of a timely filed original return of an electing taxpayer, and the
notification of election filed by the electing taxpayer pursuant to
paragraph (2) of subdivision (a) is signed by an officer or other
authorized agent of either a parent corporation of the nonelecting
taxpayer or another corporation with authority to bind the
nonelecting taxpayer to an election.
   (3) For purposes of this subdivision, a "parent corporation" of
the taxpayer is a corporation that owns or constructively owns stock
possessing more than 50 percent of the voting power of the taxpayer
as determined under subdivisions (e) and (f) of Section 25105.
   (4) If a corporation that is a member of a combined reporting
group is not itself subject to taxation under this part in the year
for which the water's-edge election is made, but subsequently becomes
subject to taxation under this part, that corporation shall be
deemed to have elected with the other taxpayer members of the
combined reporting group.
   (5) A taxpayer that is engaged in more than one apportioning trade
or business as defined in paragraph (6) of subdivision (d) of
Section 25128 may make a separate election for each apportioning
trade or business.
   (c) A water's-edge election shall remain in effect or be
terminated in accordance with this subdivision.
   (1) Except as otherwise provided in this subdivision, if one or
more electing taxpayer members of a combined reporting group later
become disaffiliated or otherwise cease to be included in the
combined reporting group, the water's-edge election shall remain in
effect as to both the departing taxpayer members and any remaining
taxpayer members.
   (2) If an electing taxpayer and a nonelecting taxpayer become
members of a new unitary affiliate group, the nonelecting taxpayer
shall be deemed to have elected if the value of the total business
assets of the electing taxpayer, and its component unitary group, if
any, is larger than the value of the total business assets of the
nonelecting taxpayer, and its component unitary group, if any.
Otherwise, the water's-edge election shall be automatically
terminated at the time the electing members become part of the
combined report. For purposes of applying paragraphs (9) and (10),
the commencement date of the deemed election shall be the same as the
commencement date of the electing taxpayers.
   (3) If taxpayers filing under water's-edge elections with
different commencement dates become members of a new unitary
affiliate group, the earliest election date shall be deemed to apply
to all electing taxpayers if the total business assets of the earlier
electing taxpayer, and its component unitary group, if any, is
larger than the value of the total business assets of the later
electing taxpayer, and its component unitary group, if any.
Otherwise, the later election commencement date shall apply to all
electing taxpayers.
   (4) (A) If a taxpayer with an election that has been terminated
under paragraph (9) or (10) becomes a member of a new unitary
affiliate group that includes another electing or nonelecting
taxpayer not affected by those paragraphs, any water's-edge election
of the other taxpayer member, if applicable, shall terminate, and any
restrictions on making a new water's-edge election, relating to an
election terminated under those paragraphs, shall apply to all
taxpayer members of the new unitary affiliate group if the total
business assets of the taxpayer with the terminated election, and its
component unitary group, if any, is larger than the other taxpayer,
and its component unitary group, if any. Otherwise, paragraph (2)
shall apply, if applicable. If paragraph (2) does not apply, all
taxpayer members of the new unitary affiliate group will be treated
as nonelecting taxpayers that are not subject to any restrictions on
making a new water's-edge election.
   (B) If two nonelecting taxpayers with different termination dates
under paragraph (9) or (10) become members of a new unitary affiliate
group, the earliest termination date shall be deemed to apply to all
nonelecting taxpayers, as well as any restrictions on making a new
water's-edge election relating to that termination, if the total
business assets of the earlier terminating taxpayer, and its
component unitary group, if any, is larger than the value of the
total business assets of the later terminating taxpayer, and its
component unitary group, if any. Otherwise, the later termination
date, and the related restrictions on making a new water's-edge
election, shall apply to all taxpayer members of the new unitary
affiliate group.
   (5) (A) Except as provided in subparagraph (B), if one or more
electing taxpayers did not report their income and apportionment
factors as members of a combined reporting group with one or more
nonelecting taxpayers, and, pursuant to a Franchise Tax Board audit
determination, the nonelecting taxpayers, are properly in the same
combined reporting group as the electing taxpayers, the water's-edge
election of the electing taxpayers shall remain in effect and the
nonelecting taxpayers shall be deemed to have made a water's-edge
election. The commencement date of the deemed water's-edge election
shall be the same as the commencement date of the electing taxpayers.
   (B) Subparagraph (A) shall not apply if the value of total
business assets of the electing taxpayers does not exceed the value
of total business assets of the nonelecting taxpayers. In that event,
the water's-edge election of each electing taxpayer is terminated as
of the date the nonelecting taxpayers are, pursuant to the audit
determination described in subparagraph (A), properly included in the
same combined reporting group as the electing taxpayers.
   (C) For purposes of applying the business asset test of this
paragraph, the term "business assets" shall have the same meaning as
subparagraph (A) of paragraph (6), except that the business assets of
other members of the unitary affiliate group that are not taxpayers
shall not be taken into account.
   (D) Notwithstanding subparagraph (A), nonelecting taxpayers may
not be deemed to have made a water's-edge election if the Franchise
Tax Board audit determination described in subparagraph (A) is
withdrawn or otherwise overturned.
   (6) For purposes of paragraphs (2) to (5), inclusive, the
following shall apply:
   (A) "Business assets" are assets, including intangible assets,
other than stock of a member of the unitary affiliate group, which
are used in the conduct of the business of the unitary affiliate
group or would produce business income to the unitary affiliate
group, if an election were not in place, if the assets were sold.
Business assets shall be valued at net book value.
   (B) The phrase "unitary affiliate group" refers to all of those
corporations that would constitute a unitary group if a water's-edge
election were not made.
   (C) The phrase "new unitary affiliate group" refers to a unitary
affiliate group that is created by a new affiliation of two or more
corporations, or by the addition of one or more new members to an
existing unitary affiliate group.
   (D) The phrase "component unitary group" means that portion of a
group of corporations that have become members of a new unitary
affiliate group that were members of their own respective unitary
affiliate group prior to entering the new unitary affiliate group,
disregarding any corporations that did not become part of the new
unitary group.
   (7) In the application of paragraphs (2) to (4), inclusive, a
series of acquisitions as steps of a single transaction shall be
aggregated as a single change of membership.
   (8) In the event of a merger or consolidation, the water's-edge
status and election commencement date or termination date of the
surviving corporation shall be consistent with the result that would
have been obtained under paragraphs (2) to (4), inclusive, if the
surviving corporation had acquired the stock of the transferor
corporation.
   (9) A water's-edge election may be terminated without the consent
of the Franchise Tax Board after it has been in effect for at least
84 months. The termination shall be made on an original, timely filed
return for the first year in which the water's-edge election is to
be terminated. To be effective, the termination shall be made by
every taxpayer that is a member of the water's-edge group in the same
manner as the election provided under subdivisions (a) and (b).
   (10) A water's-edge election may be terminated before the 84-month
period described in paragraph (9) has elapsed, but only with the
consent of the Franchise Tax Board. A request for termination shall
be made at the time and in the manner specified by the Franchise Tax
Board. The request may be granted for good cause. For purposes of
this section, good cause shall have the same meaning as specified in
Treasury Regulations Section 1.1502-75(c).
   (11) Except for deemed elections as provided in paragraphs (2),
(4), and (5), if a water's-edge election is terminated under
paragraph (9) or (10), another election may not be made under this
section for any taxable year that begins within the 84-month period
following the last day of the election period that was terminated.
The Franchise Tax Board may waive the application of this prohibition
period for good cause.
   (12) A water's-edge election shall remain in effect until
terminated.
   (d) For purposes of this section, the following shall apply:
   (1) A "combined reporting group" means those corporations whose
income and apportionment factors are properly considered pursuant to
this chapter in computing the income of the individual taxpayer that
is derived from or attributable to sources within this state, taking
into account a valid water's-edge election.
   (2) A "group return" refers to the single return which taxpayer
members of a combined reporting group may elect by contract to file,
in the form and manner prescribed by the Franchise Tax Board, in lieu
of filing their own respective returns.
   (3) A "self-assessed combined reporting group" means that group of
corporations whose income and apportionment factors are reflected in
a combined report prepared pursuant to this chapter in a timely
filed return, taking into account the effects of a purported water'
s-edge election, whether or not the membership of the corporations in
that combined report was correctly determined.
   (e) The Franchise Tax Board may prescribe any regulations as may
be necessary or appropriate to carry out the purposes of this
section.
   (f) To the extent that a taxpayer would have been required to file
on a water's-edge basis in its first taxable year beginning on or
after January 1, 2003, pursuant to a water's-edge election made in a
prior year under Section 25111, the terms of Section 25111 shall not
apply and the election shall be deemed to have been made under the
terms of this section. However, the commencement date of the election
made in a prior year under Section 25111 shall continue to be
treated as the commencement date of the water's-edge election period
for purposes of applying this section.



25113.  (a) Except as provided in subdivision (f), for taxable years
beginning on or after January 1, 2003, the election provided for in
Section 25110 shall be made on an original, timely filed return for
the year of the election. The election will be considered valid if
both of the following conditions are satisfied:
   (1) The tax is computed in a manner consistent with a water's-edge
election.
   (2) A written notification of election is filed with the return on
a form prescribed by the Franchise Tax Board. Pursuant to
regulations promulgated under this section, the Franchise Tax Board
may accept the filing of other objective evidence that supports the
conclusion that a water's-edge election was intended in lieu of
notification on the designated form.
   (b) Except as otherwise provided, a water's-edge election shall be
effective only if made by every member of the self-assessed combined
reporting group that is subject to taxation under this part.
   (1) An election made on a group return of a self-assessed combined
reporting group shall constitute an election by each taxpayer member
included in that group return, unless one of those taxpayers files a
separate return in which no election is made and paragraph (2) does
not apply.
   (2) A taxpayer that fails to make an election on its own timely
filed original return shall be deemed to have elected if either of
the following applies:
   (A) It has a parent corporation that is an electing taxpayer that
included the income and apportionment factors of the nonelecting
taxpayer in the self-assessed combined reporting group reflected in
the electing parent's timely filed original return, including a group
return.
   (B) The income and apportionment factors of the nonelecting
taxpayer are reflected in the self-assessed combined reporting group
of a timely filed original return of an electing taxpayer, and the
notification of election filed by the electing taxpayer pursuant to
paragraph (2) of subdivision (a) is signed by an officer or other
authorized agent of either a parent corporation of the nonelecting
taxpayer or another corporation with authority to bind the
nonelecting taxpayer to an election.
   (3) For purposes of this subdivision, a "parent corporation" of
the taxpayer is a corporation that owns or constructively owns stock
possessing more than 50 percent of the voting power of the taxpayer
as determined under subdivisions (e) and (f) of Section 25105.
   (4) If a corporation that is a member of a combined reporting
group is not itself subject to taxation under this part in the year
for which the water's-edge election is made, but subsequently becomes
subject to taxation under this part, that corporation shall be
deemed to have elected with the other taxpayer members of the
combined reporting group.
   (5) A taxpayer that is engaged in more than one apportioning trade
or business as defined in paragraph (6) of subdivision (d) of
Section 25128 may make a separate election for each apportioning
trade or business.
   (c) A water's-edge election shall remain in effect or be
terminated in accordance with this subdivision.
   (1) Except as otherwise provided in this subdivision, if one or
more electing taxpayer members of a combined reporting group later
become disaffiliated or otherwise cease to be included in the
combined reporting group, the water's-edge election shall remain in
effect as to both the departing taxpayer members and any remaining
taxpayer members.
   (2) If an electing taxpayer and a nonelecting taxpayer become
members of a new unitary affiliate group, the nonelecting taxpayer
shall be deemed to have elected if the value of the total business
assets of the electing taxpayer, and its component unitary group, if
any, is larger than the value of the total business assets of the
nonelecting taxpayer, and its component unitary group, if any.
Otherwise, the water's-edge election shall be automatically
terminated at the time the electing members become part of the
combined report. For purposes of applying paragraphs (9) and (10),
the commencement date of the deemed election shall be the same as the
commencement date of the electing taxpayers.
   (3) If taxpayers filing under water's-edge elections with
different commencement dates become members of a new unitary
affiliate group, the earliest election date shall be deemed to apply
to all electing taxpayers if the total business assets of the earlier
electing taxpayer, and its component unitary group, if any, is
larger than the value of the total business assets of the later
electing taxpayer, and its component unitary group, if any.
Otherwise, the later election commencement date shall apply to all
electing taxpayers.
   (4) (A) If a taxpayer with an election that has been terminated
under paragraph (9) or (10) becomes a member of a new unitary
affiliate group that includes another electing or nonelecting
taxpayer not affected by those paragraphs, any water's-edge election
of the other taxpayer member, if applicable, shall terminate, and any
restrictions on making a new water's-edge election, relating to an
election terminated under those paragraphs, shall apply to all
taxpayer members of the new unitary affiliate group if the total
business assets of the taxpayer with the terminated election, and its
component unitary group, if any, is larger than the other taxpayer,
and its component unitary group, if any. Otherwise, paragraph (2)
shall apply, if applicable. If paragraph (2) does not apply, all
taxpayer members of the new unitary affiliate group will be treated
as nonelecting taxpayers that are not subject to any restrictions on
making a new water's-edge election.
   (B) If two nonelecting taxpayers with different termination dates
under paragraph (9) or (10) become members of a new unitary affiliate
group, the earliest termination date shall be deemed to apply to all
nonelecting taxpayers, as well as any restrictions on making a new
water's-edge election relating to that termination, if the total
business assets of the earlier terminating taxpayer, and its
component unitary group, if any, is larger than the value of the
total business assets of the later terminating taxpayer, and its
component unitary group, if any. Otherwise, the later termination
date, and the related restrictions on making a new water's-edge
election, shall apply to all taxpayer members of the new unitary
affiliate group.
   (5) (A) Except as provided in subparagraph (B), if one or more
electing taxpayers did not report their income and apportionment
factors as members of a combined reporting group with one or more
nonelecting taxpayers, and, pursuant to a Franchise Tax Board audit
determination, the nonelecting taxpayers, are properly in the same
combined reporting group as the electing taxpayers, the water's-edge
election of the electing taxpayers shall remain in effect and the
nonelecting taxpayers shall be deemed to have made a water's-edge
election. The commencement date of the deemed water's-edge election
shall be the same as the commencement date of the electing taxpayers.
   (B) Subparagraph (A) may not apply if the value of total business
assets of the electing taxpayers does not exceed the value of total
business assets of the nonelecting taxpayers. In that event, the
water's-edge election of each electing taxpayer is terminated as of
the date the nonelecting taxpayers are, pursuant to the audit
determination described in subparagraph (A), properly included in the
same combined reporting group as the electing taxpayers.
   (C) For purposes of applying the business asset test of this
paragraph, the term "business assets" shall have the same meaning as
subparagraph (A) of paragraph (6), except that the business assets of
other members of the unitary affiliate group that are not taxpayers
shall not be taken into account.
   (D) Notwithstanding subparagraph (A), nonelecting taxpayers may
not be deemed to have made a water's-edge election if the Franchise
Tax Board audit determination described in subparagraph (A) is
withdrawn or otherwise overturned.
   (6) For purposes of paragraphs (2) to (5), inclusive, the
following shall apply:
   (A) "Business assets" are assets, including intangible assets,
other than stock of a member of the unitary affiliate group, which
are used in the conduct of the business of the unitary affiliate
group or would produce business income to the unitary affiliate
group, if an election were not in place, if the assets were sold.
Business assets shall be valued at net book value.
   (B) The phrase "unitary affiliate group" refers to all of those
corporations that would constitute a unitary group if a water's-edge
election were not made.
   (C) The phrase "new unitary affiliate group" refers to a unitary
affiliate group that is created by a new affiliation of two or more
corporations, or by the addition of one or more new members to an
existing unitary affiliate group.
   (D) The phrase "component unitary group" means that portion of a
group of corporations that have become members of a new unitary
affiliate group that were members of their own respective unitary
affiliate group prior to entering the new unitary affiliate group,
disregarding any corporations that did not become part of the new
unitary group.
   (7) In the application of paragraphs (2) to (4), inclusive, a
series of acquisitions as steps of a single transaction shall be
aggregated as a single change of membership.
   (8) In the event of a merger or consolidation, the water's-edge
status and election commencement date or termination date of the
surviving corporation shall be consistent with the result that would
have been obtained under paragraphs (2) to (4), inclusive, if the
surviving corporation had acquired the stock of the transferor
corporation.
   (9) A water's-edge election may be terminated without the consent
of the Franchise Tax Board after it has been in effect for at least
84 months. The termination shall be made on an original, timely filed
return for the first year in which the water's-edge election is to
be terminated. To be effective, the termination shall be made by
every taxpayer that is a member of the water's-edge group in the same
manner as the election provided under subdivisions (a) and (b).
   (10) A water's-edge election may be terminated before the 84-month
period described in paragraph (9) has elapsed, but only with the
consent of the Franchise Tax Board. A request for termination shall
be made at the time and in the manner specified by the Franchise Tax
Board.
   (A) The request may be granted for good cause. For purposes of
this section, good cause shall have the same meaning as specified in
Treasury Regulations Section 1.1502-75(c).
   (B) The Franchise Tax Board shall consent to a termination
requested by all members of a water's-edge group, if the purpose of
the request is to permit the state to contract with an expatriate
corporation, or its subsidiary, pursuant to paragraph (2) of
subdivision (b) of Section 10286 of the Public Contract Code. A water'
s-edge election terminated pursuant to this subparagraph shall,
however, be effective for the year in which the expatriate
corporation, or its subsidiary, enters into the contract with the
state.
   (11) Except for deemed elections as provided in paragraphs (2),
(4), and (5), if a water's-edge election is terminated under
paragraph (9) or (10), another election may not be made under this
section for any taxable year that begins within the 84-month period
following the last day of the election period that was terminated.
The Franchise Tax Board may waive the application of this prohibition
period for good cause.
   (12) A water's-edge election shall remain in effect until
terminated.
   (d) For purposes of this section, the following shall apply:
   (1) A "combined reporting group" means those corporations whose
income and apportionment factors are properly considered pursuant to
this chapter in computing the income of the individual taxpayer that
is derived from or attributable to sources within this state, taking
into account a valid water's-edge election.
   (2) A "group return" refers to the single return which taxpayer
members of a combined reporting group may elect by contract to file,
in the form and manner prescribed by the Franchise Tax Board, in lieu
of filing their own respective returns.
   (3) A "self-assessed combined reporting group" means that group of
corporations whose income and apportionment factors are reflected in
a combined report prepared pursuant to this chapter in a timely
filed return, taking into account the effects of a purported water'
s-edge election, whether or not the membership of the corporations in
that combined report was correctly determined.
   (e) The Franchise Tax Board may prescribe any regulations as may
be necessary or appropriate to carry out the purposes of this
section.
   (f) To the extent that a taxpayer would have been required to file
on a water's-edge basis in its first taxable year beginning on or
after January 1, 2003, pursuant to a water's-edge election made in a
prior year under Section 25111, the terms of Section 25111 may not
apply and the election shall be deemed to have been made under the
terms of this section. However, the commencement date of the election
made in a prior year under Section 25111 shall continue to be
treated as the commencement date of the water's-edge election period
for purposes of applying this section.



25114.  (a) The Franchise Tax Board, for purposes of administering
the provisions of this article, shall examine all returns filed by
taxpayers subject to these provisions.
   (b) (1) In any case of two or more organizations, trades, or
businesses, whether or not organized in the United States and whether
or not affiliated, owned or controlled directly or indirectly by the
same interests, the Franchise Tax Board may distribute, apportion,
or allocate gross income, deductions, credits, or allowances between
or among these organizations, trades, or businesses, if the board
determines that the distribution, apportionment, or allocation is
necessary in order to prevent evasion of taxes or clearly to reflect
the income of any of these organizations, trades, or businesses. In
the case of any transfer, or license, of intangible property, within
the meaning of Section 936(h)(3)(B) of the Internal Revenue Code, the
income with respect to that transfer or license shall be
commensurate with the income attributable to the intangible property.
   (2) In making distributions, apportionments, and allocations under
this section, the Franchise Tax Board shall generally follow the
rules, regulations, and procedures of the Internal Revenue Service in
making audits under Section 482 of the Internal Revenue Code. Any of
these rules, regulations, and procedures adopted by the Franchise
Tax Board shall not be subject to review by the Office of
Administrative Law.
   (3) If the Internal Revenue Service has conducted a detailed audit
pursuant to Section 482 of the Internal Revenue Code or Subchapter N
of Chapter 1 of Subtitle A of the Internal Revenue Code and has made
adjustments pursuant to those provisions, it shall be presumed, to
the extent that the provisions relate to the determination of the
amount of income and factors required to be taken into account
pursuant to Section 25110, that no further adjustments are necessary
for this state's purposes. If the Internal Revenue Service has
conducted a detailed audit pursuant to Section 482 of the Internal
Revenue Code or Subchapter N of Chapter 1 of Subtitle A of the
Internal Revenue Code and has made or proposed no adjustments to the
transactions examined, it shall be presumed, to the extent that the
provisions relate to the determination of the amount of income and
factors required to be taken into account pursuant to Section 25110,
that no adjustment is necessary for this state's purposes. These
presumptions apply to all Internal Revenue Service audit
determinations, including determinations made by the Appeals and
Competent Authority. These presumptions shall be overcome if the
Franchise Tax Board or the taxpayer demonstrates that an adjustment
or a failure to make an adjustment was erroneous, if it demonstrates
that the results of such an adjustment would produce a minimal tax
change for federal purposes because of correlative or offsetting
adjustments or for other reasons, or if substantially the same
federal tax result was obtained under other sections of the Internal
Revenue Code. No inference shall be drawn from an Internal Revenue
Service failure to audit international transactions pursuant to
Section 482 of the Internal Revenue Code or Subchapter N of Chapter 1
of Subtitle A of the Internal Revenue Code and it shall not be
presumed that any of those transactions were correctly reported.
   (c) The amendments made to this section by the act adding this
subdivision shall apply to examinations commenced by the Franchise
Tax Board on or after the effective date of that act. An examination
will be considered commenced when a taxpayer is first contacted by
the Franchise Tax Board concerning any examination with respect to
the taxpayer's return.


25116.  Notwithstanding paragraph (1) of subdivision (a) of Section
23051.5, when provisions of this article refer to provisions of the
Internal Revenue Code that do not otherwise apply for purposes of
Part 10.2 (commencing with Section 18401) or this part, the term
"Internal Revenue Code" means Title 26 of the United States Code,
including all amendments thereto, as in effect for federal purposes
for the taxable period, except as otherwise specifically provided in
this article.


DCarsonCPA.com working in support of Financial Decision Makers with knowledge that supports Leadership. In this instance looking at a relevant element of Multi-State Taxation for greater overall awareness of the implications of Regional Decision Making, This citation from California Tax Rules is as of 9/15/12 but may be referenced to a different original date, accordingly you must confirm for yourself as filing and you may NOT rely on this citation. That stated the citation still bears some educational value to familiarize with elements of  Multi-State Taxation in this occurence to CA.

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California State Franchise (Income) Tax - General Provisions

California Revenue and Taxation
 Chapter 17 - Allocation of Income
Article 1. General Provisions

REVENUE AND TAXATION CODE
SECTION 25101-25108

25101.  When the income of a taxpayer subject to the tax imposed
under this part is derived from or attributable to sources both
within and without the state the tax shall be measured by the net
income derived from or attributable to sources within this state in
accordance with the provisions of Article 2 (commencing with Section
25120). However, any method of apportionment shall take into account
as income derived from or attributable to sources without the state,
income derived from or attributable to transportation by sea or air
without the state, whether or not the transportation is located in or
subject to the jurisdiction of any other state, the United States or
any foreign country.
   If the Franchise Tax Board reapportions net income upon its
examination of any return, it shall, upon the written request of the
taxpayer, disclose to it the basis upon which its reapportionment has
been made.



25101.1.  The amendments made at the 1957 Regular Session of the
Legislature to Section 25101 of the Revenue and Taxation Code shall
be applicable only with respect to income years beginning after
December 31, 1956. The determination as to whether income derived
from or attributable to transportation by sea or air is allocable to
or taxable by California for any income year beginning before January
1, 1957, shall be made as if Section 25101 had not been amended at
the 1957 Regular Session of the Legislature and without inferences
drawn from the fact that such amendments were not expressly made
applicable with respect to income years beginning before January 1,
1957.



25101.15.  If the income of two or more taxpayers is derived solely
from sources within this state and their business activities are such
that if conducted within and without this state a combined report
would be required to determine their business income derived from
sources within this state, then such taxpayers shall be allowed to
determine their business income in accordance with Section 25101.




25101.3.  The property factor as it relates to the aircraft of an
air carrier or foreign air carrier, as defined in Section 1150, or
the operator of an air taxi, as defined in Section 1154, shall be
allocated on the basis of a formula consisting of time and arrivals
and departures as follows:
   (a) The time in state is the proportionate amount of time, both in
the air and on the ground, that certificated aircraft have spent
within the state during the taxable year as compared to the total
time everywhere during the taxable year. This factor shall be
multiplied by 75 percent.
   (b) Arrivals and departures is the number of arrivals in and
departures from airports within the state of certificated aircraft
during the taxable year as compared to the total number of arrivals
in and departures from airports both within this state and elsewhere
during the taxable year. This factor shall be multiplied by 25
percent.
   (c) The time in state factor shall be added to the arrivals and
departures factor.
   (d) The figure produced by application of subdivision (c) equals
the allocation to be applied to the original cost of property owned
or rented by the taxpayer determined under the provisions of Section
25130.
   (e) If annual statistics for the taxpayer's taxable year are not
available, statistics for representative periods designated by the
Franchise Tax Board shall be used provided that permission to do so
has been granted to the taxpayer by the Franchise Tax Board.



25102.  In the case of two or more persons, as defined in Section 19
of this code, owned or controlled directly or indirectly by the same
interests, the Franchise Tax Board may permit or require the filing
of a combined report and such other information as it deems necessary
and is authorized to impose the tax due under this part as though
the combined entire net income was that of one person, or to
distribute, apportion, or allocate the gross income or deductions
between or among such persons, if it determines that such
consolidation, distribution, apportionment, or allocation is
necessary in order to reflect the proper income of any such persons.




25103.  In the case of a corporation doing business within the
meaning of this part, whether under agreement or otherwise, in such
manner as either directly or indirectly to benefit the members or
stockholders of the corporation, or any of them, or any person or
persons, directly or indirectly interested in such business, by
rendering services of any nature whatsoever, or acquiring or
disposing of its products or the goods or commodities in which it
deals, at less than a fair price therefore, the Franchise Tax Board,
in order to prevent evasion of taxes or clearly to reflect the income
of such corporation, may require a report of such facts as it deems
necessary, and may determine the amount which shall be deemed to be
the entire net income allocable to this State of the business of such
corporation for the calendar or fiscal year, and compute the tax
upon such net income. In determining the entire net income the
Franchise Tax Board shall have regard to the fair profits which, but
for any agreement, arrangement, or understanding, might be or could
have been obtained from dealing in such products, goods or
commodities.



25104.  In the case of a corporation liable to report under this
part owning or controlling, either directly or indirectly, another
corporation, or other corporations, and in the case of a corporation
liable to report under this part and owned or controlled, either
directly or indirectly, by another corporation, the Franchise Tax
Board may require a consolidated report showing the combined net
income or such other facts as it deems necessary. The Franchise Tax
Board is authorized and empowered, in such manner as it may
determine, to assess the tax against either of the corporations whose
net income is involved in the report upon the basis of the combined
entire net income and such other information as it may possess, or it
may adjust the tax in such other manner as it shall determine to be
equitable if it determines it to be necessary in order to prevent
evasion of taxes or to clearly reflect the net income earned by said
corporation or corporations from business done in this State.



25105.  (a) For purposes of this article, other than Section 25102,
the income and apportionment factors of two or more corporations
shall be included in a combined report only if the corporations,
otherwise meeting the requirements of Section 25101 or 25101.15, are
members of a commonly controlled group.
   (b) A "commonly controlled group" means any of the following:
   (1) A parent corporation and any one or more corporations or
chains of corporations, connected through stock ownership (or
constructive ownership) with the parent, but only if--
   (A) The parent owns stock possessing more than 50 percent of the
voting power of at least one corporation, and, if applicable,
   (B) Stock cumulatively representing more than 50 percent of the
voting power of each of the corporations, except the parent, is owned
by the parent, one or more corporations described in subparagraph
(A), or one or more other corporations that satisfy the conditions of
this subparagraph.
   (2) Any two or more corporations, if stock representing more than
50 percent of the voting power of the corporations is owned, or
constructively owned, by the same person.
   (3) Any two or more corporations that constitute stapled entities.
   (A) For purposes of this paragraph, "stapled entities" means any
group of two or more corporations if more than 50 percent of the
ownership or beneficial ownership of the stock possessing voting
power in each corporation consists of stapled interests.
   (B) Two or more interests are stapled interests if, by reason of
form of ownership restrictions on transfer, or other terms or
conditions, in connection with the transfer of one of the interests
the other interest or interests are also transferred or required to
be transferred.
   (4) Any two or more corporations, all of whose stock representing
more than 50 percent of the voting power of the corporations is
cumulatively owned (without regard to the constructive ownership
rules of paragraph (1) of subdivision (e)) by, or for the benefit of,
members of the same family. Members of the same family are limited
to an individual, his or her spouse, parents, brothers or sisters,
grandparents, children and grandchildren, and their respective
spouses.
   (c) (1) If, in the application of subdivision (b), a corporation
is eligible to be treated as a member of more than one commonly
controlled group of corporations, the corporation shall elect to be
treated as a member of only one commonly controlled group. This
election shall remain in effect unless revoked with the approval of
the Franchise Tax Board.
   (2) Membership in a commonly controlled group shall be treated as
terminated in any year, or fraction thereof, in which the conditions
of subdivision (b) are not met, except as follows:
   (A) When stock of a corporation is sold, exchanged, or otherwise
disposed of, the membership of a corporation in a commonly controlled
group shall not be terminated, if the requirements of subdivision
(b) are again met immediately after the sale, exchange, or
disposition.
   (B) The Franchise Tax Board may treat the commonly controlled
group as remaining in place if the conditions of subdivision (b) are
again met within a period not to exceed two years.
   (d) A taxpayer may exclude some or all corporations included in a
"commonly controlled group" by reason of paragraph (4) of subdivision
(b) by showing that those members of the group are not controlled
directly or indirectly by the same interests, within the meaning of
the same phrase in Section 482 of the Internal Revenue Code. For
purposes of this subdivision, the term "controlled" includes any kind
of control, direct or indirect, whether legally enforceable, and
however exercisable or exercised.
   (e) Except as otherwise provided, stock is "owned" when title to
the stock is directly held or if the stock is constructively owned.
   (1) An individual constructively owns stock that is owned by any
of the following:
   (A) His or her spouse.
   (B) Children, including adopted children, of that individual or
the individual's spouse, who have not attained the age of 21 years.
   (C) An estate or trust, of which the individual is an executor,
trustee, or grantor, to the extent that the estate or trust is for
the benefit of that individual's spouse or children.
   (2) Stock owned by a corporation, or a member of a controlled
group of which the corporation is the parent corporation, is
constructively owned by any shareholder owning stock that represents
more than 50 percent of the voting power of the corporation.
   (3) Stock owned by a partnership is constructively owned by any
partner, other than a limited partner, in proportion to the partner's
capital interest in the partnership. For this purpose, a partnership
is treated as owning proportionately the stock owned by any other
partnership in which it has a tiered interest, other than as a
limited partner.
   (4) In any case where a member of a commonly controlled group, or
shareholders, officers, directors, or employees of a member of a
commonly controlled group, is a general partner in a limited
partnership, stock held by the limited partnership is constructively
owned by a limited partner to the extent of its capital interest in
the limited partnership.
   (f) For purposes of this section, each of the following shall
apply:
   (1) "Corporation" means a subchapter S corporation, any other
incorporated entity, or any entity defined or treated as a
corporation pursuant to Section 23038 or 23038.5.
   (2) "Person" means an individual, a trust, an estate, a qualified
employee benefit plan, a limited partnership, or a corporation.
   (3) "Voting power" means the power of all classes of stock
entitled to vote that possess the power to elect the membership of
the board of directors of the corporation.
   (4) "More than 50 percent of the voting power" means voting power
sufficient to elect a majority of the membership of the board of
directors of the corporation.
   (5) "Stock representing voting power" includes stock where
ownership is retained but the actual voting power is transferred in
either of the following manners:
   (A) For one year or less.
   (B) By proxy, voting trust, written shareholder agreement, or by
similar device, where the transfer is revocable by the transferor.
   (g) The Franchise Tax Board may prescribe any regulations as may
be necessary or appropriate to carry out the purposes of this
section, including, but not limited to, regulations that do the
following:
   (1) Prescribe terms and conditions relating to the election
described by subdivision (c), and the revocation thereof.
   (2) Disregard transfers of voting power not described by paragraph
(5) of subdivision (f).
   (3) Treat entities not described by paragraph (2) of subdivision
(f) as a person.
   (4) Treat warrants, obligations convertible into stock, options to
acquire or sell stock, and similar instruments as stock.
   (5) Treat holders of a beneficial interest in, or executor or
trustee powers over, stock held by an estate or trust as
constructively owned by the holder.
   (6) Prescribe rules relating to the treatment of partnership
agreements which authorize a particular partner or partners to
exercise voting power of stock held by the partnership.
   (h) This section shall apply to taxable years beginning on or
after January 1, 1995.



25106.  (a) (1) In any case in which the income of a corporation is
or has been determined under this chapter with reference to the
income and apportionment factors of one or more other corporations
with which it is doing or has done a unitary business, all dividends
paid by one to another of any of those corporations shall, to the
extent those dividends are paid out of the income previously
described of the unitary business, be eliminated from the income of
the recipient and, except for purposes of applying Section 24345,
shall not be taken into account under Section 24344 or in any other
manner in determining the tax of any member of the unitary group.
   (2) (A) For purposes of this section, the dividends described in
paragraph (1) include dividends paid out of the income previously
described of the unitary business by a member of the unitary group to
a corporation formed subsequent to the accrual of the income, if the
recipient corporation was part of the unitary group during the
period from its formation to its receipt of those dividends.
   (B) The Franchise Tax Board may deny any dividend elimination for
the dividends described in this paragraph if the board determines
that a transaction is entered into or structured with a principal
purpose of evading the tax imposed by this part.
   (3) For purposes of this section, "income previously described of
the unitary business" shall include income earned by members of the
unitary group during taxable years when no member of the unitary
group was taxable in this state to the extent that the income of the
unitary group would have been determined under this chapter had any
member of the corporation's unitary group been subject to tax in this
state at the time that income was earned.
   (b) The Franchise Tax Board may prescribe any regulations that may
be necessary or appropriate to carry out the purpose of this
section, which is to prevent taxation of dividends received by a
member of a unitary group where those dividends were paid from the
income previously described of the unitary business by another member
of the same unitary group.



25106.5.  (a) The Franchise Tax Board may adopt regulations
necessary to ensure that the tax liability or net income of any
taxpayer whose income derived from or attributable to sources within
this state which is required to be determined by a combined report
pursuant to Section 25101 or 25110 of this chapter, and of each
entity included in the combined report, both during and after the
period of inclusion in the combined report is properly reported ,
determined, computed, assessed, collected, or adjusted.
   (b) Notwithstanding subdivision (a), the Franchise Tax Board shall
not adopt regulations under the authority of this section which
shall in any manner determine, prescribe, or otherwise affect (1) the
inclusion or exclusion in the combined report of those entities
whose income and apportionment factors are to be taken into account
pursuant to Sections 25101 and 25110 of this chapter, or (2) after
the period of inclusion, cause the income or expenses of an entity
which is excluded from a combined report pursuant to Sections 25101
and 25110 of this part to be included in a combined report.



25107.  (a) For the purposes of allocation and apportionment of
income under Sections 25101 and 25121, an international banking
facility maintained by a bank within California shall be considered
doing business without the state. Intangible personal property and
sales reflected on the segregated books and records recognized by the
Board of Governors of the Federal Reserve System as attributable to
the international banking facility shall be attributed to that
international banking facility in determining the property, payroll,
and sales factors of the bank.
   (b) As used in this section, "bank" means a commercial bank, the
principal office of which is located in this state and which is
incorporated and doing business under the laws of the United States
or of this state, a United States branch or agency of a foreign bank,
an Edge corporation organized under Section 25 (a) of the Federal
Reserve Act, 12 United States Code 611-631, or an Agreement
corporation having an agreement or undertaking with the Board of
Governors of the Federal Reserve System under Section 25 of the
Federal Reserve Act, 12 United States Code 601-604 (a).



25108.  (a) For corporations whose income is subject to the
provisions of Section 25101 or 25101.15, the net operating loss
determined in accordance with Section 172 of the Internal Revenue
Code for a particular taxable year shall be the corporation's "net
loss for state purposes" as defined in subdivision (c).
   (b) The net operating loss deduction allowed by Sections 24416,
24416.1, and 24416.2, for a taxable year shall be deducted from "net
income for state purposes" (as defined in subdivision (c)) for that
taxable year.
   (c) "Net income (loss) for state purposes" means the sum of the
net income or loss of that corporation apportionable to this state
and the income or loss allocable to this state as nonbusiness income,
as provided by Chapter 17 (commencing with Section 25101).

Provided for Educational Purposes of Understanding CA State Taxation. This citation is as of 9/15/12 and may not represent the most current CA. State Rules on Allocation of Income, but never the less serves as an example of State Level Tax Rules in an overall analysis of MultiState Taxation factors. Accordingly you must confirm for yourself the provisions of California Tax Rules and you may not rely on this citation for any purposes as it has been shared here. For your needs in that direction you may correspond with the California State Franchise Tax Board.

DCarsonCPA we work with wide ranging updates of relevance to Financial Decision Makers at work in the US Economy. For the opportunity to support Clients with corresponding needs and to add some measure of reciprocal value to the greater Economy, to help where we can - so we may ALL better connect on important Decision Making that is ultimately reflected in Financials. Please learn more at www.dcarsoncpa.com .

Connecticut Credit Unions: Loans and Lease Losses Account: Net Worth Requirement

Select look at Connecticut State Rules for Credit Unions at the interesection of Accounting, Financial Reporting and corresponding Regulatory Reporting responsibilities of Compliance.

A look at the Loan and Lease Losses Account: Net Worth Requirement.

 Sec. 36a-441a. Loan and lease losses account. Net worth requirement. (a) A Connecticut credit union shall establish and maintain an allowance for loan and lease losses account in an amount that represents the estimated losses on loans and leases. The allowance for loan and lease losses account requirement shall be computed and adjusted, through the provision for loan and lease losses account, prior to the declaration or payment of dividends.

(b) A Connecticut credit union shall contribute from its earnings, as net worth, the greater of (1) such amounts as may be required by 12 CFR Part 702, as from time to time amended, or (2) amounts in accordance with the following schedule: (A) In the case of a Connecticut credit union in existence for more than four years and having assets of two million dollars or more, ten per cent of its gross income until its net worth equals four per cent of total assets, then five per cent of gross income until its net worth equals six per cent of total assets; and (B) in the case of a Connecticut credit union in existence for four years or less or a Connecticut credit union having assets of less than two million dollars, ten per cent of its gross income until its net worth equals seven and one-half per cent of total assets, then five per cent of its gross income until its net worth equals ten per cent of total assets.

(c) The commissioner may increase the net worth requirement of any Connecticut credit union set forth in subsection (b) of this section when the commissioner deems it necessary to protect the safety and soundness of such Connecticut credit union.

(d) Whenever the net worth falls below the applicable percentages of total assets specified in subsection (b) of this section, the Connecticut credit union shall make regular contributions in such amounts as specified in subsection (b) of this section as may be needed to maintain such net worth. Such contributions shall be made prior to the declaration or payment of dividends.

(e) As used in this section, the term "net worth" means the retained earnings balance of the Connecticut credit union at the end of each dividend period, excluding the allowance for loan and lease losses account and, in the case of a Connecticut credit union designated by the National Credit Union Administration as a low-income credit union under 12 CFR 701.34, as from time to time amended, net worth includes any secondary capital account that is uninsured and subordinate to all other claims, including claims of creditors, shareholders and the National Credit Union Share Insurance Fund. Retained earnings shall consist of undivided earnings, as determined under generally accepted accounting principles, regular reserves and other appropriations designated by the commissioner or the National Credit Union Administration, or its successor agency, or by the governing board of the Connecticut credit union with the approval of the commissioner.

(P.A. 02-73, S. 43; P.A. 03-84, S. 50.)

History: P.A. 03-84 changed "Commissioner of Banking" to "commissioner" in Subsecs. (c) and (e), effective June 3, 2003.

Note: As of read date 3/14/12 ALL Connecticut State Rules on Credit Unions are subject to change and update and your MUST confirm as filing or relying for best results.


Additional reference in citation above is correspondent to NCUA Rules in Federal Laws correspondent to National Credit Unions. Generally speaking Credit Unions can be governed under various levels of Rules from the Federal Level to the State to the local / Municipal level depending on the organization of the Credit Union.

The reference above corresponds to Banks and Banking / NCUA under Federal Rules where part 702 correspond to Prompt Corrective Action for this purpose we will just visit an underlying Definition which corresponds to categorization, however you should note that there are additional elements of the Net Worth Classification, Mandatory and Discretionary Supervisory Actions, Alternative Prompt Corrective Action for Credit Unions and Reserves to consider with detailed steps under Part 702.

here is a sample of the definitions from Part 702:

§ 702.2 Definitions.

Except as provided below, the terms used in this part have the same meanings as set forth in FCUA sections 101 and 216, 12 U.S.C. 1752, 1790d.

(a) Appropriate regional director means the director of the NCUA regional office having jurisdiction over federally-insured credit unions in the state where the affected credit union is principally located.

(b) Appropriate State official means the commission, board or other supervisory authority having jurisdiction over credit unions chartered by the State which chartered the affected credit union.

(c) Credit union means a federally-insured, natural person credit union, whether federally- or State-chartered, as defined by 12 U.S.C. 1752(6).

(d) CUSO means a credit union service organization as described in 12 CFR 712 et seq. for federally-chartered credit unions, and as defined under State law for State-chartered credit unions.

(e) NCUSIF means the National Credit Union Share Insurance Fund as defined by 12 U.S.C. 1783.

(f) Net Worth means (1) The retained earnings balance of the credit union at quarter-end as determined under generally accepted accounting principles, subject to paragraph (f)(3) of this section. Retained earnings consists of undivided earnings, regular reserves, and any other appropriations designated by management or regulatory authorities;

(2) For a low income-designated credit union, net worth also includes secondary capital accounts that are uninsured and subordinate to all other claims, including claims of creditors, shareholders and the NCUSIF; and

(3) For a credit union that acquires another credit union in a mutual combination, net worth includes the retained earnings of the acquired credit union, or of an integrated set of activities and assets, less any bargain purchase gain recognized in either case to the extent the difference between the two is greater than zero. The acquired retained earnings must be determined at the point of acquisition under generally accepted accounting principles. A mutual combination is a transaction in which a credit union acquires another credit union or acquires an integrated set of activities and assets that is capable of being conducted and managed as a credit union.

(4) The term “net worth” also includes loans to and accounts in an insured credit union established pursuant to section 208 of the Act [12 U.S.C. 1788], provided such loans and accounts:

(i) Have a remaining maturity of more than 5 years;

(ii) Are subordinate to all other claims including those of shareholders, creditors and the National Credit Union Share Insurance Fund;

(iii) Are not pledged as security on a loan to, or other obligation of, any party;

(iv) Are not insured by the National Credit Union Share Insurance Fund;

(v) Have non-cumulative dividends;

(vi) Are transferable; and

(vii) Are available to cover operating losses realized by the insured credit union that exceed its available retained earnings.

(g) Net worth ratio means the ratio of the net worth of the credit union (as defined in paragraph (f) of this section) to the total assets of the credit union (as defined by a measure chosen under paragraph (j) of this section).

(h) New credit union means a federally-insured credit union which both has been in operation for less than ten (10) years and has $10,000,000 or less in total assets.

(i) Senior executive officer means a senior executive officer as defined by 12 CFR 701.14(b)(2).

(j) Shares means deposits, shares, share certificates, share drafts, or any other depository account authorized by federal or state law.

(k) Total assets. (1) Total assets means a credit union's total assets as measured by either—

(i) Average quarterly balance. The average of quarter-end balances of the current and three preceding calendar quarters; or

(ii) Average monthly balance. The average of month-end balances over the three calendar months of the calendar quarter; or

(iii) Average daily balance. The average daily balance over the calendar quarter; or

(iv) Quarter-end balance. The quarter-end balance of the calendar quarter as reported on the credit union's Call Report.

(2) For each quarter, a credit union must elect a measure of total assets from paragraph (k)(1) of this section to apply for all purposes under this part except §§702.103 through 702.108 [risk-based net worth requirement].

(l) Weighted-average life means the weighted-average time to the return of a dollar of principal, calculated by multiplying each portion of principal received by the time at which it is expected to be received (based on a reasonable and supportable estimate of that time), and then summing and dividing by the total amount of principal.

[65 FR 8584, Feb. 18, 2000, as amended at 65 FR 44966, July 20, 2000; 67 FR 71087, Nov. 29, 2002; 73 FR 72691, Dec. 1, 2008; 75 FR 34620, June 18, 2010; 76 FR 60367, Sept. 29, 2011]

Note as of Read Date 3/14/12 ALL US Laws and Rules correspondent to Credit Unions are subject to change and update and MUST be confirmed as filing.




DCarsonCPA.com is the web presence of Dean T. Carson II, CPA interested in supporting Credit Unions, Non Profits, Businesses and Individuals on Accounting, Taxes, Financials and related Compliance, Analysis and more.   Building a line for Decision Makers at the connecting points of Government, Industry, Business, Non Profit and Individual Financials.  Learn more at www.dcarsoncpa.com .

Checking in with the State 2-29-12

Checking in with the State at 2-29-12 Selected Highlights:

Executive Branch

Statement from Gov. Malloy's General Counsel Andrew J. McDonald on Today's State Supreme Court Decision

Gov. Malloy: Revitalizing Housing for a Stronger Economy

Saturday, Sunday & Monday: Gov. Malloy Attends National Governors Association Conference

Gov. Malloy: Investing in Innovation Will Grow Our Economy

Wednesday: Gov. Malloy Keynotes CT Council of Small Towns Annual Conference

Legislative:

The Legislature is in Session for the Short Session.

2012 Legislative Session:

The Regular Legislative Session Convenes February 8th and Adjourns May 9th of 2012

We will be catching up with the Legislature over the next few days as there is lots of new activity to follow.


Judicial:

A guide to Connecticut State Courts



Code of Judicial Conduct 2012:

http://www.jud.ct.gov/Publications/PracticeBook/PB_2012.pdf


OAG

Attorneys General Challenge Google On New Privacy Policy

Attorney General Urges Utility Regulators to Ensure Proposed NU-NSTAR Merger Benefits Connecticut Customers

Attorney General Announces $25 Billion Joint Federal-MultiState Settlement on Mortgage Foreclosure Servicing Wrongs



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